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HUB Group, Inc. (HUBG) Downgraded Following Updated Outloook

September 10, 2014 8:42 AM EDT

HUB Group, Inc. (NASDAQ: HUBG) was downgraded to Market Perform from Strong Buy at Raymond James. Yesterday HUB Group provided updated outlook in an 8-K filing. The full text from the filing is below.

"We wanted to communicate several updates at Hub Group, Inc.

We wanted to communicate several updates at Hub Group, Inc. As previously reported in our Form 10-K and 10-Q, a complaint was filed in the U.S. District Court for the Eastern District of California (Sacramento Division) by Salvador Robles against our subsidiary, Comtrak Logistics, Inc., now known as Hub Group Trucking, Inc. The complaint seeks class certification on behalf of a class comprised of present and former California-based truck drivers for Hub Group Trucking who were classified as independent contractors, from January 2009 to the present. The complaint alleges Hub Group Trucking has misclassified such truck drivers as independent contractors and that such drivers were employees. A second complaint alleging substantially similar claims was filed in the Superior Court of the State of California for the County of San Bernardino on July 24, 2014, but the Company has not been served with a copy of that complaint. The Company believes that the independent contractor truck drivers were properly classified as independent contractors at all times. Nevertheless, because lawsuits are expensive, time-consuming and could interrupt our business operations, we have decided to make settlement offers to individual drivers with respect to the claims alleged in the lawsuits, without admitting liability. The Company estimates that the total settlement amount, if all drivers accept the offers, is approximately $9.5 million. To date, a substantial number of the independent contractors have decided to accept the settlement offer. We are also changing our business model in California from independent contractor truck drivers to employee drivers. In the Los Angeles and Stockton markets, the cost of the employee driver model will initially be higher than the independent contractor model and will fluctuate depending on the cost of various factors, including claims, repairs and fuel. We estimate that the impact of the change in the model for the remainder of the year would be between two and four cents per share. In addition, we expect a total of approximately $1 million (or about two cents per share) of one time costs in the last half of 2014 for legal, travel and communication costs related to the settlements and model change implementation.

Below are several updates to the Hub segment intermodal outlook.

We are currently experiencing increased operating costs as a result of further deterioration in rail service. Worse than anticipated rail service has produced, among other things, fleet utilization of 1.7 days slower than last year in the months of July and August. If rail service and utilization do not improve for the remainder of the year, we expect the impact would be between four and six cents per share.

In July, we expected that we would see intermodal volume growth in the Hub segment in the last half the year. After completing two months of the quarter, Hub segment volume is down approximately 3%. We now project that Hub segment intermodal volume will be flat or down slightly for the remainder of the year. If this holds true, we believe the impact on earnings per share would be between one and two cents.



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